Originally published Thursday, November 5, 2009 at 12:12 AM
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Value Line CEO fired, fined in mutual-fund fee scheme
Value Line, billed as 'the most trusted name in investment research,' replaced its leader and agreed to pay $43 million to settle U.S. claims the firm fabricated trades to generate fees from mutual funds it managed.
Bloomberg News
Value Line, billed as "the most trusted name in investment research," replaced its leader and agreed to pay $43 million to settle U.S. claims the firm fabricated trades to generate fees from mutual funds it managed.
Chief Executive Officer Jean Buttner, 74, stepped down and will pay a $1 million fine, the Securities and Exchange Commission (SEC) said Wednesday in a lawsuit. The agency sued Chief Compliance Officer David Henigson, 52, saying he implemented the scheme. Henigson will pay $250,000 and resign.
Value Line, Buttner and Henigson didn't admit or deny the claims, the agency said. The individuals are barred from the industry or serving as a company officer, the SEC said.
"Value Line misappropriated millions of dollars from the mutual funds they managed by artificially allocating fund trades and then charging the funds for phantom brokerage services," Robert Khuzami, head of the SEC's enforcement division, said in a statement. "Such blatant wrongdoing will not be tolerated."
The firm, described on its Web site as "synonymous with trust, reliability and objectivity," reaped more than $24 million from 1986 to 2004 in bogus brokerage fees on trades funneled through its affiliated broker, Value Line Securities, which didn't perform bona fide services on the trades, the SEC said Wednesday on its Web site announcing the settlement.
"The asset-management business has not grown as the fund industry has grown," said Geoff Bobroff, a mutual-fund consultant. "It's possible that they may now need to sell the funds because of the reputational question."
Howard Brecher, chief legal officer for New York-based Value Line, was named to the additional post of acting chairman and chief executive officer, the 78-year-old company said Wednesday in a regulatory filing.
Buttner, who the SEC said took over as Value Line CEO in 1988, allegedly directed a "commission recapture program" in which the company sent trades to outside brokers in exchange for a lower commission rate. Instead of passing the discount to the funds, the firm kept the rebate, falsely telling shareholders and the funds' independent directors that Value Line Securities served the best interests of its customers, the SEC said.
The company said it ended the "affiliated brokerage" practice in 2004.
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